Nigerian Economy on The Edge: Naira Depreciates, Exchanges for ₦1,850 To The Dollar

Central Bank of Nigeria Building (Credit: Bloomberg)

These are not good times for Nigeria, as the West African economic power house is experiencing a serious downturn in its economy.

The situation is becoming dire for many of the citizens and inhabitants, with inflation hitting badly at basic commodities and commonly consumed food items.

Where did it all go wrong for the oil producing nation with a population of over 200million people?

On May 29th 2023, the inauguration date of the new administration, President Bola Tinubu made a public statement announcing the removal of fuel subsidies in the country.

That singular statement set in place a chain reaction which spiked inflation as petrol prices were immediately jacked up by retailers.

The multiplier effects were felt almost immediately in the economy in which the cost of any activity is sensitive to the price of petrol. The result was almost daily price hikes in basic items around the country.

It is ironic that Nigeria, which is about the 5th largest oil producing country in the world is totally reliant on imports of refined petroleum products to drive and power its economy. Nigeria had basically zero refining capacity at the time of the removal of the subsidies.

There are pockets of hope with the starting of operations of the Dangote Refinery in Lagos and the Government owned refinery in Port Harcourt, Rivers State. The Dangote Refinery is reported to be one of the largest in the world with a refining capacity of 600,000 barrels of crude oil per day. However, the refinery is yet to fully start operations, and is even reported to be planning to import the crude oil feedstock it wants to use in the refinery.

The Port Harcourt refinery had similarly announced it would start operations after the successful rehabilitation of the plant which was built in the 1960s. However, no products are been produced from the refinery yet.

The other critical factor that affected the economy was the devaluation of the Naira by the Central Bank which announced a new policy of floating the currency and leaving the forces of demand and supply to determine the value of the Naira.

The resultant effect has been the downward spiral in the value of the Naira against almost all the major convertible currencies including the Dollar, Euro and the British Pound.

The Naira reached a new low of N1,850 to the Dollar this week. This situation has worsened the poverty level in the country racked by high unemployment and inflation.

The latest official inflation statistics released by the National Bureau of Statistics (NBS) had put the inflation at 30%. However, the reality on ground is that the inflation figure is much higher than that. The unemployment rate is believed to be in the mid 40% range.

To make matters worse, there is an ongoing insecurity issue especially in the farm bearing areas of the Northern and Middle Belt regions of the country. Farmers have abandoned their farms due to recurring killings blamed on clashes between Farmers and nomadic cattle herders.

Gangs of Ak-47 bearing herders have wreaked havoc in many food producing settlements in the North with the military unable to put a stop to the atrocities.

This has led to a drop in food production with the attendant increase in food prices and hunger around the country.

There have been pockets of demonstrations against the spiraling cost of living in the country. Demonstrations had previously taken place in Kano, Kwara and Niger State in the North, while a similar protest was held this week in Ibadan, which is in the South West, a stronghold of President Bola Tinubu.

The question on the minds of many analysts, is how can the country get out of this economic mess?

It would not be an easy task in an economy where almost everything is imported using scarce foreign currency. The Federal Government has blamed the downward slide of the Naira on currency speculators and declared a clampdown on their activities. This blame seems a bit far fetched

Nigeria is in a far bigger mess than just the activities of currency speculators. For instance, the constant collapse of the national electricity grid which currently produces about 4,000MW, in a country that is supposed to be the economic leading light in the African continent, is just not good enough.

Also, the seemingly inability of the military and security forces to tackle the insecurity problems around the country is very alarming.

The problems are a lot deeper and would need a totally honest recalibration to get anything going. There is a growing feeling that the Government has run out of ideas to deal with the situation.

The ruling elite in Nigeria needs to understand how bad things have gone. Now is the time to be serious and face head on the myriad of challenges affecting the country before it becomes another economic Lebanon.


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